In Hyderabad, the Telangana Federation of Chit Funds has requested that Finance Minister Mallu Bhatti Vikramarka help remove GST from chit fund services.
K Srinivas Reddy, President of the Federation, and L Suman, Secretary General, explained how chit funds gather savings from low and middle-income families. This pooled money is then given to a member in need. They compared chit funds to banks and finance companies in terms of the financial services they offer. Chit funds stand out as the only financial institutions, aside from banks, that encourage small savings, promoting financial inclusion and growth.
Srinivas Reddy highlighted that chit funds charge an 18% GST on foreman commissions and other earnings, unlike banks that do not impose GST on interest. This tax is a burden, as chit funds serve as an alternative financial option for many people. The primary income for chit funds, the foreman commission, is significantly affected by GST.
Reddy stated that removing GST would help the industry attract more people, aiding subscribers in achieving financial independence. A formal request has been sent to Union Finance Minister Nirmala Sitharaman. He warned that GST on chit funds reduces the returns for savers.
Lower returns may deter people from using chit funds, leaving unbanked individuals without access to affordable loans. Without chit funds, they might have to borrow at high-interest rates of 35% to 60% or more.
